IRS commissioner wants to show progress amid threat of budget cuts

Upon his confirmation to the Senate last February, Daniel Werfel told lawmakers that if he were given the job of commissioner of the Internal Revenue Service, he would work to increase “public confidence” in the beleaguered agency and its $80 billion that Congress had granted it would use to build a “more modern system.” and high-performing organization.

A year later, Mr. Werfel has overseen the elimination of a backlog of thousands of tax returns, reduced wait times on IRS phone lines and created a system that allows qualified taxpayers to file their federal returns free of charge. But these achievements were not enough to satisfy Republicans, who accused Mr. Werfel of making the IRS more intrusive and even engaging in lawless behavior.

Hostile hearings in Congress are routine for IRS commissioners, and when Mr. Werfel testifies before the House Ways and Means Committee on Thursday, he will receive a frosty reception as he fends off attempts to cut his agency's budget.

For Mr. Werfel, the confrontation is an opportunity to explain why even skeptics would benefit from a well-funded IRS

“I think the strongest statement the IRS can make, if there is a proposal to significantly reduce our budget, is to showcase our work and demonstrate that we are on a good path to improving tax operations in a way that benefits taxpayers,” Mr. Werfel said in an interview this week.

The IRS would get $80 billion as part of the Inflation Reduction Act of 2022, and that money is expected to help the agency strengthen its enforcement capabilities to tackle tax fraud and modernize its outdated technology. As part of a deal to raise the debt limit last year, Democrats agreed to Republicans' demands to claw back $20 billion of those funds. And Republican lawmakers have eyed additional cuts in recent months amid negotiations over paying for other policies.

During his first year in office, Mr. Werfel has tried to allay concerns from agency critics that the IRS would hire thousands of armed agents to harass middle-class Americans and small businesses. To do that, he has focused on efforts to make the IRS more accessible by staffing its customer service centers and making it possible for taxpayers to reach the agency without waiting on the phone for hours.

As part of its modernization campaign, the IRS also announced initiatives to crack down on wealthy tax evaders, stopped sending agents unannounced to homes to collect unpaid taxes and began introducing artificial intelligence technology into its audits.

But top Republicans have argued that any sign of progress at the IRS is being overshadowed by ongoing problems. They insist that Mr. Werfel's agency, which they say has a history of attacking conservatives, is influenced by politics and favors Democrats.

These concerns have been fueled by recent security breaches. The IRS is under pressure to improve its data security protocols after a former contractor accused of leaking the tax documents of Donald J. Trump and other wealthy Americans was sentenced to five years in prison. This is evident from a report published last week by the Inspector General of the Ministry of Finance of the Tax Authorities found that as of July, more than 200 former IRS employees or contractors still had access to sensitive information.

Tax committee members are expected to press Mr. Werfel on Thursday over why he has delayed enforcement of a controversial tax policy that would have required users of digital wallets and e-commerce platforms such as Venmo, PayPal, Cash App, StubHub and Etsy start reporting. small transactions to the tax collection agency. The policy was introduced as part of the 2021 American Rescue Plan and has been criticized for increasing scrutiny on lower- and middle-class taxpayers. While Republicans abhor the policy, they argue that Mr. Werfel's delays violate the law.

“The IRS should not protect Democrats from the consequences of their own bad legislation,” Jason Smith, the Republican chairman of the Ways and Means Committee, said in a statement. “The IRS cannot bypass the Constitution and simply rewrite laws.”

Mr. Werfel said he planned to argue that he was within his rights to delay the so-called Venmo tax because the law, as written, would cause widespread confusion and potentially harm taxpayers. And he would argue that data security at the agency has improved significantly over the past year. However, such incidents have provided critics of the IRS with fodder to argue that it does not deserve the additional funding it has received.

“Any time you're negotiating a budget issue, and you want money for Ukraine or Israel or something, we're going to take it out of the IRS piggy bank,” said Grover Norquist, founder and president of Americans for Tax Reform, an advocacy group that advocates for lower taxes. “Because they haven't shown any seriousness about being better at something.”

The Biden administration has said the continued attacks on the IRS are part of a strategy to weaken the agency so it doesn't have the capacity to catch wealthy taxpayers evading paying what they owe. The Treasury Department estimates that the United States has a… almost $700 billion It is argued that stronger enforcement of the tax code is critical to reducing America's dependence on borrowed money.

“There are those who have power and those who have wealth who would like nothing more than for the IRS not to have the resources to go after them and make them pay their fair share,” said Wally Adeyemo, the deputy minister of Finance, in an interview.

Frequent discussions about defunding the agency have left Mr. Werfel looking over his shoulder as he tries to implement the priorities in the ambitious multi-year operating plan the agency laid out last year.

Mr. Werfel said the barrage of criticism directed at the IRS over the years had taken its toll on staff, but that he believed morale was beginning to improve. He compares the role of the body to that of an impartial referee necessary for the functioning of government, but he recognizes the challenge of staying out of politics.

“I think most people see us as the tax collector, and that's not the most popular action the government is taking,” Mr. Werfel said. “It's becoming a reality that when the debate is about the role of government, the size of government, the actions of government, the IRS is going to be at the center of that debate.”